Ask the Construction Expert, August 2011

What incentives encourage employees to continue improving?

Have you ever felt like you are the only person in your company who cares about bottom-line results, pleasing customers and making a fair profit? Damian Lang, owner of Lang Masonry Contractors, Inc., had those exact thoughts the first few years he was in business. However, Lang later realized he needed to change this way of thinking to continue growing his business.

Lang founded his company by laying brick and block throughout central Ohio, and he had a few local friends as employees. In a decade, he grew his company into one of the largest masonry contractors in the United States. His company grew to more than $20 million in sales through the boom years and continues to maintain a steady flow of business.

Lang accomplished this growth by establishing systems that hold employees accountable for achieving their expected job results. Lang Masonry is now building some of the largest, most prestigious masonry projects throughout Ohio and beyond.

Conduct Tactical Meetings

I spent several days coaching and working with Lang at his company where I observed his systems and management style. His management style includes daily tactical morning meetings to discuss immediate job issues, weekly manager meetings to review every job’s performance and monthly crew meetings with the foremen and field workers to talk about safety, quality and job productivity.

Create Open-Book Financial Systems

Lang Masonry uses an open-book financial system to involve everyone in achieving company goals. To keep the company successful in a tough economy, Lang updates every company manager’s future total sales and markup goals to accomplish gross and net profit margins. Each manager has to understand what it takes at the job and company level to be profitable and keep the company growing.

Increase Productivity

“People do not work for your company, you or their boss – they work for themselves,” Lang says.  When workers say, “No problem, I get paid by the hour,” it means the time it takes to do the job does not matter to them because they know they will get paid regardless. Is this the attitude you want from your employees?

When people get paid for what they produce, they produce more. And when they produce more, your company can continue doing more with less.

It is also discouraging to employees if the owner retains all the profits. If your productivity goes down, your job costs will go up, plus your estimating labor rates per work unit will increase as well. This causes your field job costs to increase, making your company less competitive. The only way to win any new work under this scenario is to lower your markup and make less money than you need to prosper.

To increase profitability, unit-based pay is the best approach. You simply take your bidding rates for labor, and break them down into the hours it takes to do the work.

Measure Work Performed

When workers know exactly how many units must be installed each day, they will do anything necessary to get the work done. For example, Lang Masonry employees know exactly how many blocks need to be installed every day. The estimator counts the number of blocks or bricks in the job. Then, he assigns a labor rate on top of the material costs to calculate the final bid. When the job starts, the foreman knows how many days it will take to finish the job. Converted to blocks per day per crew size, each crew member then works together to complete the job at or under budget. The crew gets paid based on a dollar-per-block-rate, which means the more blocks installed, the larger their paychecks become.

This system requires the foreman to count actual installed results at the end of each day and keep the project manager, superintendent and crew informed of daily progress until the job is finished. This keeps the field crew and individual workers accountable for achieving results. Workers get paid only for what they install, which also keeps jobs on budget with very few labor overruns. Plus, the overall labor bid rate becomes more competitive over time as crews learn more efficient ways to build projects.

This method also keeps workers focused on results. Most company incentive plans are based on work completed several months ago. But workers cannot relate a year-end bonus check to work they did nine months ago. By knowing daily results, the crew can make adjustments and keep jobs on track. If the job goal is to install 1,000 blocks per day, and the crew only installs 800, their pay is reduced accordingly.

Maintain Safety and Quality

Successful contractors maintain a safe working environment and produce quality work. A pay-for-performance system is not complete without including provisions for maintaining safety and quality. Each of Lang’s jobs has a designated safety person responsible for maintaining the safety program on every jobsite. An effective safety program results in no lost-time accidents or safety violations. Lang’s crew is compensated accordingly for these expected results. The entire crew’s daily pay is reduced to cover any issues that occur – accidents, violations or costs associated with safety problems. This encourages the crew to work together. 

Lang’s incentive pay programs also reward crews for no callbacks, no punch-list items and no closed-job repairs. When employees care about these details, it generates big returns, lowers field costs and makes your company more competitive. If quality issues arise at Lang Masonry, the same crew that built the project is required to fix the problem. These repair costs are then deducted from the crew’s pay. This keeps the entire crew focused on doing excellent work and reduces closed-job costs.

Require a Drug-Free Workplace

Substance abuse hinders every employee’s performance and puts the crew at risk when working in dangerous situations. At Lang Masonry, every employee is required to take an initial drug test and periodic randomly scheduled drug tests. If  workers fail, they must find another job or enter a drug rehab program, get counseling and get retested.

Learn from Others

In addition to installing systems to motivate his employees, Lang continues learning himself. Learning from other successful companies allows you to grow and build a better company. Lang is involved in a contractor peer group that meets several times per year. Talking about business operations and challenges with other contractors allows him to learn from their successes and failures.